One of the more inconvenient changes to civil litigation practice that arose from the "New Rules" in 2010 was the requirement (under Rule 3-5(4)) that a defendant must apply for leave to file a third party notice after 42 days from service of a notice of civil claim. In Mao v. Liu, 2017 BCSC 226, Affleck J. reviewed the purpose behind Rule 3-5(4) and discussed the considerations on an application for leave to file a third party notice.
In Mao the purchasers of a property sued the notary and notary corporation they had retained to complete the conveyance of that property. The defendant notary, Mr. Liu, had undertaken to make inquiries regarding the residency status of the vendors for income tax purposes. Mr. Liu completed the conveyance without confirming the residency status of the vendors. One of the registered owners of the property was a non-resident and the Canada Revenue Agency subsequently advised the plaintiffs that, as no certificate of compliance with s. 116 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), had been obtained in relation to the purchase of the property, the plaintiffs owed withholding tax assessed at $695,000.
At a summary trial on liability Mr. Justice Affleck found the defendants liable to the plaintiffs. The plaintiffs had contracted with the defendants to advise on whether the registered owners of the property were Canadian residents at the time of the purchase. The defendants made an inquiry of Borden Ladner Gervais ("BLG"), the law firm representing the creditors who had conduct of sale of the property, regarding the residency status of the vendors. BLG advised they could make no representations regarding residency status of the vendors, as they were not BLG's clients. Nonetheless, the notary proceeded to complete the conveyance without making further inquiries regarding the residency status of the vendors. This was held to be a breach of the standard of care of a reasonable notary.
In our view, there is nothing remarkable about the finding of liability; the notary had explicitly contracted to make reasonable inquiries regarding the residency status of the vendors and had simply failed to do so. Of more interest to the practice is the unsuccessful application by the defendants for an order permitting them to deliver a third party notice naming BLG and three other proposed parties.
The plaintiffs' notice of civil claim was served on the defendants on January 21, 2016. The defendants' initial application for leave to file a third party notice was not filed until September 14, 2016, the day after the plaintiffs applied for a summary trial on liability. A further application for leave to file a third party notice was filed on November 21, 2016, a week after the plaintiffs' application for a summary trial was adjourned by consent.
Rule 3-5(4) provides:
(4) A party may file a third party notice
(a) at any time with leave of the court, or
(b) without leave of the court, within 42 days after being served with the notice of civil claim or counterclaim in which the relief referred to in subrule (1) is claimed.
The defendants' applications came well after the 42-day deadline for filing a third party notice without leave of the court. The defendants provided no evidentiary explanation for the delay, which was characterized as a "lengthy delay" (para. 37). Affleck J. did not accept the defendants' complaint the plaintiffs had moved the litigation along "too expeditiously" (para. 43).
Affleck J. adopted the explanation of the purpose behind Rule 3-5(4) provided by Goepel J. (as he then was) in Tyson Creek Hydro Corporation v. Kerr Wood Leidal Associates Limited, 2013 BCSC 1741 at para. 61:
... The New Rule does not require the indiscriminate use of third party proceedings. The New Rule does, however, force a defendant to give early consideration to the question of adding additional parties. That is consistent with the object of the rules to secure the just, speedy and inexpensive determination of every proceeding on its merits. This is not, I suggest, a significant burden for a defendant. In many cases the role of potential third parties will be known to the defendant at the outset of the litigation or shortly thereafter. When a defendant only learns about a potential third party well into the litigation it will be a factor the court will have to consider in determining whether or not leave should be given to issue the third party notice.
[Emphasis added in Mao]
Tyson Creek was a case where a date for a lengthy trial would have been lost if leave was granted to issue a third party notice. Affleck J. found Mao was distinguishable on its facts as no conventional trial had been scheduled. Nevertheless, he found that there would be prejudice to the plaintiffs if the third parties were now added. In particular, he noted a summary trial is "no less legitimate a means of resolving a civil claim than is a conventional trial with live witnesses" (para. 43) and, therefore, there was no obligation on the plaintiffs to set a date for a conventional trial. The defendants' application had already necessitated one adjournment of the summary trial and another would create compelling prejudice, as the liability of the defendants was clear (para. 44).
While third party proceedings are intended to prevent a multiplicity of proceedings, this consideration did not outweigh the prejudice to the plaintiffs who had received a notice of assessment for almost $700,000 that had been payable for almost two years. The defendants were still at liberty to commence their own actions against the proposed third parties.
Rule 3-5(4) places a somewhat onerous burden on defence counsel to act quickly to identify third parties and commence proceedings against them within 42 days of service of the notice of civil claim. If that deadline is not met and leave is required, Mao emphasizes two key factors that will weigh against such leave being granted:
- if the plaintiff will be prejudiced in its conduct of the litigation through the adjournment of a trial including a summary trial it is unlikely leave will be granted; and
- if the defendant's application to file the third party follows a lengthy delay affidavit evidence explaining that delay to the court's satisfaction will be necessary.